Swiss publish ‘too big to fail’ rules for banks

A Swiss government committee on Oct. 4 published new rules requiring the country’s two biggest banks to increase their capital reserves beyond international standards agreed last month.

The committee said it considered Credit Suisse Group and UBS AG to be “too big to fail,” but that implicit government bailout guarantees should in future be replaced with stricter capital requirements to prevent bankruptcy in the first place.

“At present, there is no doubt that the two big banks are systemically important in Switzerland,” the committee said.

Its proposals, which are backed by the Swiss National Bank and the country’s financial regulator FINMA, would require both banks to hold reserves of 10 percent in common equity and 19 percent in total capital by 2019.

The so-called Basel III rules agreed by governors of major central banks in September require reserves of 7 percent and 10.5 percent respectively, though the composition of those reserves is slightly different from the Swiss proposal.

Credit Suisse said Monday the Swiss rules were “very tough” but it would meet the requirements.

UBS, the only Swiss bank to require a government bailout during the financial crisis, didn’t immediately comment.

The proposals, which will now be discussed by the Cabinet and may require a change to Swiss banking laws, don’t include tighter regulation of bankers’ bonuses or special taxes on profits as demanded by some lawmakers.

But they do stipulate that both banks need to develop detailed emergency plans in case bankruptcy makes a wind-down inevitable.